Using an ACH payment method allows your business to securely process payments to vendors and retain control over your funds throughout the process.
Payments go through the ACH Network and are issued to the receiving bank account. There are two types of ACH transfers available to your business: ACH debit and ACH credit.
Understanding these options and their application is important, so we have outlined the basics for you here.
What is an ACH Credit Transaction?
An ACH credit transaction allows you to move money from one account to another, often at a different bank.
Setting up an ACH credit transfer authorizes you to take funds from your own account and send them to a different account. When you initiate paying a bill online, you are moving money from your account to the bill provider’s account using an ACH Credit transaction.
What is an ACH Debit Transaction?
An ACH Debit transaction takes money from an authorized account to make a payment.
To set up an ACH debit transaction, you authorize another party to take money from your account for payment. Automatic bill payment is an example of ACH debit transaction, wherein you provide account information to your service provider and allow them to pull funds from your account. With this method, you are authorizing the service provider to pull funds from your account on a regular basis based on reoccurring invoices.
Understanding ACH Credit vs. ACH Debit
In terms of security and transfer time, these transaction types are the same.
For each type, funds are transferred from a bank account, sent through the ACH Network for verification and processing, and then issued to the receiving account. You can think of ACH Credit as depositing money into an account and ACH Debit as withdrawing money from an account to be moved into another. The two types of transactions are similar but each has a different application.
ACH Credit removes the need to issue and send accounts payable paper checks, reducing your risk of fraudulent charges or mailing delays. You can also use ACH Credit to issue direct deposit payments to your employees. You will certainly save your business, employees, and vendors a trip to the bank and reduce transfer waiting times.
With ACH Debit, you can schedule payments, automate your payment processing, and reduce staff errors associated with manual processing. Your business can use ACH debit to pay reoccurring costs, which in turn reduces your outgoing payment costs and frees staff to focus on other more important tasks.
ACH Debit vs. ACH Credit at a Glance
ACH credit and debit are both ways to process direct electronic payments through the ACH Network.
For ACH credit, you can quickly deposit money into an account, reducing the money and time associated with paper checks; with ACH debit transactions, you can authorize another entity to withdraw money from your account, allowing you to automate payment for reoccurring bills or expenses.
You can choose either payment method based on your business needs and may find your business utilizing both to further automate and streamline your AP processing.